Discount Formula

Do you know what the formula of Discount is? Here we are going to give all the answers regarding the Discount Formulas. With the help of information presented here you will get to know about the Profit Loss Percentage and all other Discount Formula Important Rules with Examples. We all have read the Discount Formula In Maths and many candidates may be still studying it. but sometimes it becomes difficult to understand the whole concept in a single theorem. To remove all the confusion and make the concept of Discount Formula Clear we have created this page.

While buying something it is usual that we demand for some discount and sometimes avail it also. But the matter to think is that how the amount of Discount is calculated and how we give or take discount of things we purchase or sell. Here in this article we are going to describe all the facts and rules regarding the Discount Formula and How To Calculate Discount Percentage Formula. In the below section of this page of recruitmentresult.com you are going to see and understand the concept of the Discount Percentage Formula Marked Price/ Formula For Successive Discount/ Discount Calculation Formula and all others.

Discount Formula

Discount Formula:

Discount=List Price−Selling Price

Therefore

Selling Price=List Price−Discount

List Price=Selling Price+Discount

Successive Discount Formula

The formula for total discount in case of successive-discounts :

If the first discount is x% and 2nd discount is y% then ,

Total discount = ( x + y – xy /100)%

Example :

1) The successive-discount of 10% and 20% are given on the purchase of a bag . If the price of the bag is Rs. 2250, find the selling price.

A succinct Discount Rate formula does not exist. More, discount rate is included in the discounted cash flow analysis and is the result of studying the riskiness of the given type of investment. Two formulas provide a discount rate:

If you have a discounted price and know the discount percentage, you can calculate the original price with a simple formula that divides the discounted price by the result of 1 minus the discount percentage.

How the formula works

In the example, the active cell contains this formula:

=C6/(1-D6)

In this case, Excel first calculates the result of 1 – the value in D6 (.2) to get 0.8. Next the value in C6 (56), which represents the discounted or “sale” price, is divided by 0.8 to get a final result of 70:

=56/(1-0.2)

=56/0.8

=70

Discount Factor Formula

The discount factor, DF(T), is the factor by which a future cash flow must be multiplied in order to obtain the present value. For a zero-rate (also called spot rate) r, taken from a yield curve, and a time to cash flow T (in years), the discount factor is:

DF(T ) = 1/(1+rT)

In the case where the only discount rate one has is not a zero-rate (neither taken from a zero-coupon bond nor converted from a swap rate to a zero-rate through bootstrapping) but an annually-compounded rate (for example if the benchmark is a US Treasury bond with annual coupons) and one only has its yield to maturity, one would use an annually-compounded discount factor:

DF(T)=1/(1+r)T

However, when operating in a bank, where the amount the bank can lend (and therefore get interest) is linked to the value of its assets (including accrued interest), traders usually use daily compounding to discount cash flows. Indeed, even if the interest of the bonds it holds (for example) is paid semi-annually, the value of its book of bond will increase daily, thanks to accrued interest being accounted for, and therefore the bank will be able to re-invest these daily accrued interest (by lending additional money or buying more financial products). In that case, the discount factor is then (if the usual money market day count convention for the currency is ACT/360, in case of currencies such as United States dollar, euro, Japanese yen), with r the zero-rate and T the time to cash flow in years:

DF(T)= 1 / (1+ (r/360) 360T )

or, in case the market convention for the currency being discounted is ACT/365 (AUD, CAD, GBP):

DF(T)= 1/(1+ (r/365)365T )

Sometimes, for manual calculation, the continuously-compounded hypothesis is a close-enough approximation of the daily-compounding hypothesis, and makes calculation easier (even though it does not have any real application as no financial instrument is continuously compounded). In that case, the discount factor is:

When the sum is put at compound interest, then P.W. = Amount/ (1+ R/100 )T

Example:

Suppose a man has to pay Rs. 156 after 4 years and the rate of interest is 14% per annum. Clearly, Rs. 100 at 14% will amount to R. 156 in 4 years. So, the payment of Rs. now will clear off the debt of Rs. 156 due 4 years hence. We say that:

Sum due = Rs. 156 due 4 years hence;

Present Worth (P.W.) = Rs. 100;

True Discount (T.D.) = Rs. (156 – 100) = Rs. 56 = (Sum due) – (P.W.)

We define: T.D. = Interest on P.W.; Amount = (P.W.) + (T.D.)

Interest is reckoned on P.W. and true discount is reckoned on the amount.

Marked Price And Discount Formula

Marked Price(M.P)

It is the price of an item which is marked on it without any discount.

Cost Price(C.P)

The cost at which any item is purchased, is called its Cost Price.

Selling Price(S.P)

The price at which an item is sold is called Selling Price of the item.

Discount

It is the percentage of rebate given on the Marked Price.

Example:

Suppose an Item is marked at price Rs 1000 by the shopkeeper which actually costs Rs 800 to the Shopkeeper. It is sold to customer at a discount of 10%.

Then, Here Marked Price = Rs 1000

Cost Price = Rs 800

Discount = 10% of Marked Price = 10% of 1000 = 0.1X1000 = 100

Selling price = Marked Price – Discount = 1000 – 100 = 900

If the Selling price > Cost Price , then It is Profit. If the Selling price < Cost Price , then It is Loss. If the Selling price = Cost Price , then It is neither Profit nor Loss.

For Example a businessman A buys products worth, say Rs. 10,000 from another businessman B at a credit of say 5 months. Then, B prepares a bill, called the bill of exchange. A signs this bill and allows B to withdraw the amount from his bank account after exactly 5 months.

The date exactly after 5 months is called nominally due date. Three days (known as grace days) are added to it get a date, known as legally due date.

Suppose B wants to have the money before the legally due date. Then he can have the money from the banker or a broker, who deducts S.I. on the face vale (i.e., Rs. 10,000 in this case) for the period from the date on which the bill was discounted (i.e., paid by the banker) and the legally due date. This amount is known as Banker’s Discount (B.D.).

Thus, B.D. is the S.I. on the face value for the period from the date on which the bill was discounted and the legally due date.

Banker’s Gain (B.G.) = (B.D.) – (T.D.) for the unexpired time.

Example:

The banker’s discount on a bill due 4 months hence at 15% is Rs. 420. The true discount is:

TD = BD*100 / 100+ (R*T)

= Rs. (420*100 / 11+ (15* (1/3))

= Rs. (420*100 / 105)

= Rs. 400

Dividend Discount Model Formula

The dividend discount model (DDM) is a procedure for valuing the price of a stock by using the predicted dividends and discounting them back to the present value. If the value obtained from the DDM is higher than what the shares are currently trading at, then the stock is undervalued.

By selling a bicycle for Rs. 2,850, a shopkeeper gains 14%. If the profit is reduced to 8%, then the selling price will be:

Let Cost Price was X.

X + 14% of X = 2850

X + 14X/100 = 2850

X + 0.14X = 2850

1.14X = 2850

X = 2500.

So, Cost Price = Rs. 2500.

Now, Selling Price When profit remains at 8%,

= 2500 + 8% of 2500

= Rs. 2700.

Short-Cut

CP of bicycle = 100/114*2850 = Rs. 2500;

SP for a profit of 8% = 108/100*2500 = Rs. 2700.

With the help of details given here it will become easier for candidates to understand the concept of Discount Formula. to get more updates about Formula Of Successive Discount / Discount Formula Math / Discount Percent Formula/ 3 Successive Discount Formula / Three Successive Discount Formula candidates are advised to visit our pages regularly.